XP POWER (XPP) £23.65

Loss to date: 9.9%

XP Power is an electronics engineer, a science-based designer of complex power switching and control solutions. Its kit is used when off-the-shelf solutions simply won’t do, such as AC-DC (alternating current – direct current) power supplies, DC-DC converters, high voltage power and radio frequency power capability. Target markets include defence, aerospace, healthcare, rail, and a few other custom power niches. We flagged its appeal at £23.65 in January.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

Inventory build-ups, slowing investment decisions, the ongoing technological tensions between the US and China, have all weighed on XP Power this year but we would expect markets to take plenty of encouragement from the recent first quarter update (13 April).

It certainly pointed to a strong start to 2023, including 16% revenue growth between January and March and improved profitability building on the recovery delivered in the latter part of 2022. As anticipated, order intake continued to normalise towards pre-pandemic levels in the first quarter and a similar level of order intake is anticipated for the second quarter.

Importantly, management’s unchanged full year expectations are supported by an order backlog worth around £280 million. Given the visibility this implies for 2023 Numis stuck with its forecasts, anticipating earnings per share and dividends of 163.9p and 96.4p.

WHAT SHOULD INVESTORS DO NOW?

It’s notable that the share price has turned a corner since the latest trading update, rallying 12%, so markets are clearly starting to see the potential. On Numis’ estimates, the 2023 price to earnings multiple is now below 13, while a yield of 4.6% looks well-funded and attractive.

It is disappointing that the stock has flagged since our original idea, but if you liked the original investment thesis, XP Power looks ripe for topping up, while also offering a lower entry for new investors.

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